aima deloitte inclusive growth

September 2011www.deloitte.com/in

Inclusive growthA challenging opportunity

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Contents

Introduction 3

Theimperativenow 4

Theopportunity 5

Governance 10

Education 11

EnergyandResources 13

TelecomandTechnology 15

Infrastructure 16

Healthcare 18

Financialinclusion 21

Businessmodelinnovation 23

Conclusion 24

References 25

Acknowledgements 26

Inclusive Growth AChallengingOpportunity3

Introduction

Reformsundertakenintheearly1990smadeIndiaoneoftheworld’sfastestgrowingeconomies.TheboomoftheITindustryandimprovedagriculturalproductioncreatedanatmosphereofoptimism,whichledtothecoiningofphrases,suchasIncredibleIndia,IndiaShining,andIndia2020aroundtheendofthemillennium.

TheIndiangrowthstoryhasbeenoneofhighGrossDomesticProduct(GDP)growthbutprimarilydrivenbythegrowthinservicessector.Notallsectorsoftheeconomyhavegrownatthesamepaceasisreflectedintherelativelylowagriculturalgrowthrate,low-qualityemployment,pooreducation,inadequatehealthcareservices,rural-urbandivide,socialinequalities,andregionaldisparities.

Growththatisnotinclusiveaffectsthesociety,theeconomy,andthepolity.Alackofinclusivegrowthcanresultinrealorperceivedinequities,whichhasitsownsocialramifications.Inclusivegrowthpromoteseconomicgrowthpartlybybroadeningthebasefordomesticdemandandpartlybyincreasingthenumberofpeoplewithastakeinreformsandinastablegovernment.

Inclusivegrowththusseekstobroadentheflowofbenefitsofglobalizationtowardsthecurrentlyexcludedsections.However,forachievinginclusivegrowth,itisessentialthatthediffusionofopportunitiesbesupportedwithgoodgovernanceandaccountability.

Inordertoreducedisparityandpromoteinclusivegrowth,theIndiangovernmenthassetstate-specifictargetsforparameters,suchasGDPgrowthrate,agriculturalgrowthrate,newworkopportunities,povertyratio,dropoutrateinelementaryschools,literacyrate,gendergapinliteracyrate,infantmortalityrateandmaternalmortalityratio.

Inthelastfewyears,inclusivegrowthhasbeenattheforefrontofstudiessponsoredbymultilateralaidagencies,suchastheUnitedNations,theWorldBank,AsianDevelopmentBank,andseveralnongovernmentalorganizations(NGOs).Successivegovernmentshaveinitiatedseveralprojects,suchasJawaharRozgarYojna,IntegratedRuralDevelopmentProgram,RuralHousingScheme,andSwarnjayantiGramSwarozgarYojanatopromoteinclusivegrowth.However,forinclusivegrowthtohappeninacountrywiththescaleandsizeofIndia,privatesectorinvolvementisequallyimportant.Theprivatesectorhasstartedcontributingwithinitiatives,suchastheICICIFoundationhavingbeensetupwiththesolepurposeofpromotinginclusivegrowth.Thegovernmentandprivatesectorcanplaycomplementaryrolesindrivinginclusivegrowth.ThereisaneedforthepublicandtheprivatesectorinIndiatohaveaunifiedapproachtowardshowtheycanextend,innovate,andcollaborateinnewwaystodriveinclusivegrowth.

ThispaperelaboratestheneedtobuildInclusiveIndiaandemphasizeswhyitisimperativetofocusoninclusivegrowthnow.ItpresentstheopportunitiesavailableforbuildinganinclusiveIndiabyidentifyingkeyleversingovernance,education,energyandresources,telecomandtechnology,infrastructure,healthcare,financialinclusion,andbusinessmodelinnovation.Itgivesexamplesofinitiativesundertakenbyothercountriestobuildinclusiveness,suchasthosebyThailand,Malaysia,Kenya,andTheGambiaintheeducationsector.ItalsohighlightssomeofthereasonswhyeffortstobuildanInclusiveIndiainthepasthavehadonlylimitedsuccessandwhatcanbedonebetterinthefuturesothatinclusivegrowthisrealized.Thepaperfurtherstressesupontheneedforthepublicandtheprivatesectortoworkintandemandleverageeachother’sstrengthstodriveinclusivegrowth.

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The imperative now

ThefocusofthegovernmentinrecentyearshasshiftedfrompromotingIncredibleIndiatobuildingInclusiveIndia.Inclusivegrowthneedstobeachievedinordertoreducepovertyandothersocialandeconomicdisparities,andalsotosustaineconomicgrowth.Inrecognitionofthis,thePlanningCommissionhadmadeinclusivegrowthanexplicitgoalintheEleventhFiveYearPlan(2007-2012).ThedraftoftheTwelfthFiveYearPlan(2012-2017)liststwelvestrategychallengeswhichcontinuethefocusoninclusivegrowth.Theseincludeenhancingthecapacityforgrowth,generationofemployment,developmentofinfrastructure,improvedaccesstoqualityeducation,betterhealthcare,ruraltransformation,andsustainedagriculturalgrowth.

Despitethepresenceofover300,000NGOs,whichareworkinginsectorsspanningthegamutfromagriculturetomicrofinance,andfromminorityrightstoscientificandindustrialresearch1,India’sgrowthhasprimarilybenefiteditsurbaneliteandmiddleclasspopulationwhoareengagedlargelyinthefast-growingservicessector.TheIndianmiddleclass,definedasthoseconsumingbetween2and20USdollarsperday,hasgrownbyabout205millionbetween1990and2008.2However,around70%ofthepoorarefromruralareas3wherethereisalackofbasicsocialandinfrastructureservices,suchashealthcare,roads,education,anddrinkingwater.Stuntedagriculturalgrowth,relativelyhighfoodprices,lowruralwages,insufficientgovernmentspendingonruraldevelopmentandobsoleteinfrastructurearekeydeterminantsofruralpoverty.

SignificantinterstateaswellasintrastateregionaldisparitiescontinuetoexistinIndia.Lowgrowthratesandpoorpublicservicesinthepoorerstatesfurtherwidensthedisparityindevelopment.Forexample,povertyconcentrationcanbeseenintheadjoiningstatesofBihar,Jharkhand,Chhattisgarh,UP,MP,Orissa,andRajasthan.Thesestatescollectivelyaccountfor44%ofthetotalpopulationand60%ofthepoor.4Mostofthelow-incomestateshaverichnaturalresourcesbutpoorinfrastructureandhumandevelopment.Neighbourhoodeffectisseenwhenonesuchbackward

regiondragsdownitsneighbouringregions.Becauseofmutuallyreinforcingconsequencesofgeographicalclusteringandneighbourhoodeffect,thereisadangerthattheseadjoiningstateswillbecaughtinapovertytrap.

Women,labourers(includingagriculturallabourers),tribalpopulation,somescheduledcastegroups,andreligiousminoritiesinparticulararelaggingbehindinjobopportunities,earnings,andhumandevelopment.Around58%oftheworkersinIndiaareinvolvedintheagriculturalsector.Despitethis,thecontributionofagriculturalandalliedsectorsintheGDPisonlyaround14%.5Hence,fortheremovalofpovertyitisimperativethattheruralfarmandnonfarmsectorsbepromoted.Agriculturecontinuestosufferfromfragmentedlandholdingsandwateravailabilityproblems.Further,itisvulnerabletocropprocurementpricesandweatherconditions.Poormonsoonsleadtocropfailuresandsubsequentlyindebtrepaymentdistressforfarmers.

Figure 1: Population and GDP contribution by State (2010)

Population (%) GDP Contribution (%)

Uttar Pradesh Maharashtra Bihar

Tamil Nadu Rajasthan Gujarat

Kerala Jharkhand

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50%

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90%

100%

3% 2%3% 4%

5%7%

6%4%

6%

7%9%

3%

9%14%

16%8%

Source:Census2011(population);VMWAnalyticsServicedata(state-wiseGDP)


Anestimated86%oftheIndianworkforceisengagedintheinformalorunorganizedsector,6however,thequalityofemploymentremainsaproblem.Workersinthissectorhavevirtuallynosocialsecurity.AreportbyWorldBanksuggeststhat,inclusivegrowthapproachtakesalongertermperspectiveasthefocusisongeneratingproductiveemploymentratherthanondirectredistributionofincomeasameansofimprovingfinancialwell-beingoftheexcludedgroups.

Withtheworld’ssecondlargestpopulationandwidespreadurbanandruralpoverty,Indiafacesthechallengeofbridgingthegrowinggapbetweenthehavesandthehave-nots.Itisimperativetofocusoninclusivegrowthnowasitisinterrelatedwithseveralkeychallengesfacingthegovernment,suchaspovertyreduction,increaseinquantityandqualityofemployment,agriculturaldevelopment,socialsectordevelopment,reductioninregionaldisparities,andenvironmentalprotection.

Demographicdividendoccurswhenproportionoftheworkingclasspopulationislargerthanthedependednon-workingclasspopulation.Asaresult,fewerresourcesgointomeetingtheneedsofthedependentgroupsandmoreresourcesarereleasedforinvestmentineconomicgrowthandhumandevelopment.Thereisevidencethatdemographicdividendhasplayed

amajorroleinthetransitionofseveraleconomiesfromdevelopingtodeveloped.Forexample,inthe1960s,birthrateintheRepublicofKoreafellwhichresultedinelementaryschoolenrolmentsdeclining.FundspreviouslyallocatedforelementaryeducationwerefreedupandusedtoimprovethequalityofeducationathigherlevelsinKorea,whichresultedinfastergrowthinthelaterperiods.7AnewreportbytheRandCorporationhaspointedoutthatdemographicdividendsareestimatedtohavecontributedone-fourthtotwo-fifthsofEastAsianpercapitaGDPgrowthinthelate20thcenturyandIndiacurrentlyhastheopportunitytoreapthisdividend.

However,demographicdividendonlyprovidesashortwindowofopportunityanddoesnotguaranteeautomaticgrowthanddevelopmentunlesseffortsaremadetotakeadvantageofit.Forexample,Pakistanbeganexperiencingademographicdividendin1990andisexpectedtohaveitswindowofopportunityopentill2045.However,ithasbeenunabletocapitalizeonthisopportunityoverthepasttwodecades.8Hence,itisimportanttousetheperiodinwhichademographicdividendexiststomakeinvestmentsineducation,healthcare,andjobcreation.Asperthe2011Census,thedecadalgrowthrateoftheIndianpopulationhasseenadeclineforthefirsttimesinceIndianindependence,havingdroppedsharplyfrom21.15%in2001to17.64%in2011.Althoughthepercentageofthe15-34agegroupreachesitspeak(35.4%)in2010andtapersofffromthenonwards,thepercentageofthe15-59agegroupreachesitspeak(64.6%)onlyin2035,andtapersoffgraduallyoverthenext15yearsto61.6%in2050.AfailuretotakeadvantageofthisopportunitybyIndiacouldhaveadamagingeffectonitsfutureprospectsandleadtoaspirallingriseinpoverty,unemployment,andsocialinequalitiesinthecountry.Ontheotherhand,thesamedemographicdividendprovidesIndiaanopportunitywhichcouldseeitturnintoadevelopednationifbackedbyfavourablepolicies,goodplanning,andefficientimplementation.

InclusivegrowthisalsoakeycomponentifIndiaistofulfilitsMillenniumDevelopmentGoals,which193UnitedNationsmemberstatesaimtoachieve

Figure 2: Workforce and GDP contribution by sector

58%

15%

17%

30%

25%

55%

0%

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30%

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Workforce (%) GDP (%)

Services Industries Agriculture

Source:Census2011(population);VMWAnalyticsServicedata(state-wiseGDP)

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by2015.Thesegoalscompriseeradicatingextremepoverty;achievinguniversalprimaryeducation;promotinggenderequality;reducingchildmortalityrates;improvingmaternalhealth;combatingAIDS,malaria,andotherdiseases;ensuringenvironmentalsustainability;anddevelopingglobalpartnershipsfordevelopment.

Environmentalconcerns,suchaslanddegradation,waterpollution,andairpollutionneedtobeaddressedwhilestrivingforrapiddevelopment.Highereconomicgrowthatthecostofindiscriminatedamageanddeteriorationoftheenvironmentcannotbesustainable.Attemptsofthegovernmenttoproviderapidandinclusivegrowthinthepasthaveoftenbeenmadedifficultduetolackofinfrastructure.Theroleofpublic-

privatepartnershipindevelopmentoftheinfrastructurerequiredforpromotinginclusivenessinIndiahasbeenrecognizedtobecrucial.

Inclusivenesscanberealizedbyhighgrowthratesonlywhenthesourcesofgrowthareexpandingandtherebyincludinganincreasingshareofthepopulationinthegrowthprocess.

“The government need not do any of the things that are better done by a competitive market. In agriculture, for example, a competitive market is important but the role of the state is also very important in providing infrastructure, rural connectivity, rural electrification, investment in irrigation, watershed management and so on. All these areas require a lot of participatory work by the community. In infrastructure, too, the role of the state is crucial. Historically, even in the U.S., infrastructure has been developed by the public sector. We are trying to do it through public-private partnerships.”

—Montek Singh Ahluwalia,DeputyChairmanofthePlanningCommissionofIndia,Nov2007


The opportunity

Theobjectivesofaninclusivegrowthagendaistoreducepoverty,improvequalityoflife,andensuretotheextentpossible,thatallsegmentsofsocietybenefitfromtheeconomicgrowthofthecountry.Anumberofmacroandmicrolevelinterventionshaveshowntobeconducivetopromotinginclusivegrowth.Atthemacrolevel,recommendationssuchasimprovingfiscaldiscipline,tradeliberalization,opennesstoForeignDirectInvestment,privatization,deregulation,taxreforms,labourmarketflexibility,providingsocialsafetynets,reorientationofpublicexpenditure,andlegalandpoliticalreformscanbeusefulinguidingpolicydiscussionsforpromotingrapidandinclusivegrowthindevelopingcountries.9Atthemicrolevel,reducingincomeandnon-incomerelatedinequality,improvingpublicinfrastructure,healthcare,education,accesstomarkets,accountability,women’sempowerment,roleplayedbycivilsocietyorganizations,andgoodgovernancecanhelpacceleratepovertyreduction.AnIndiawithasustainable9%orhighergrowthratewillbepossibleonlyifurbanandruralIndiaintegrateineconomicopportunitiesandqualityoflife.Thisimpliesthatthekeyleverstoachievinginclusivegrowthareincreasingtheavailability,accessibility,quality,

andaffordabilityofvariousproductsandservicessothatallsegmentsofpopulationhaveequitablesocialandeconomicopportunities.Toachievethis,thegovernmentandtheprivatesectorneedtoworkjointly,whileabidingbythefundamentalprinciplesofademocraticsociety.

Withinthiscontext,theresponsibilityofthegovernmentistocreateafavourableandstablemacroeconomicenvironmentthatfostersprivatesectorparticipationwithoutleadingtomarketdistortionssuchasmonopoliesorwindfallprofitstoafewselectfirms.Tocreatesuchanenvironment,thegovernmentneedstocreateandimplementlawsthatareequitable,facilitatetheprocurementofnaturaland/orscarceresources,andprovideeconomicincentivesthatencouragetheprivatesectortopromoteinclusivegrowthbyservingunservedorunderservedmarketsegments.Additionally,insectorsofnationalimportance(suchasdefence)orthosethatpromotesocialwelfare(suchassocialprotectionandpro-pooremployment),thegovernmentcansupplementprivatesectorparticipationthrougheffectivelymanagedpublicsectorundertakingsorwelfareprojects.

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Onitspart,topromoteinclusivegrowth,theprivatesectormustutilizeitsexpertiseandaccesstotechnology,capital,andhumanresourcesinbuildinginnovativebusinessmodelsthathelpincreaseacompany’stoplineandprofitabilitywhileensuringthatbenefitsaccruetoalargerpopulationbase.Contrarytopopularbelief,theprofitmotiveofprivatecompaniesandsocialgoodthatisenvisagedbyinclusivegrowthisnotnecessarilyatoddswitheachother.Therearenumerousinstances,bothinIndiaandabroad,wherecompanieshavedevelopedbusinessmodelsthatprofitablyservecustomersatthebottomofthepyramid.

TheIndianmiddleclasswillcontinuetoexpandsignificantlyinthecomingyearsprovidedthecurrentlevelofeconomicgrowthissustained.Inrecognitionofthis,anumberofproductsandservices,suchastheTataNanoandflightsoperatedbylow-costcarriershavebeenintroducedinrecentyears.AstheincomegrowthacrossIndiahascontinued,thecharacterofconsumptionhasalsochanged.Alesserproportionofthetotalspendingisbeingusedbythemiddleclassonbasicnecessities,suchasfoodandclothingand

thereisincreasedexpenditureonitems,suchasmobilephones,consumerelectronics,andentertainment.Widespreadadoptionofmobilephonesandtelevisionsets,andincreasingpenetrationoftheInternet,opensupnewmarketsforadvertisementsandpromotions.Forcorporationsaroundtheworld,theIndianmiddleclassthuspresentsahugeandrapidlygrowingbusinessopportunity.

However,therapidgrowthresultingfromtheeconomicliberalizationinitiatedin1992hasalsowidenedthegapbetweenthehavesandthehave-nots.Inordertoreducethisgapandbringthosecurrentlyintheperipheryintothegrowthstory,thegovernmentandprivatesectorneedtoimplementinitiativesacrosseightbroaddimensions—governance,education,energyandresources,telecomandtechnology,infrastructure,healthcare,financialinclusion,andbusinessmodelinnovation.


Goodgovernanceisatthecoreofimprovingthedeliveryofessentialpubliclyprovidedservices.Itprovidesthemechanismforlinkinginclusion,decisionmaking,andaccountability.Problemsininfrastructure,criticalforbuildinganinclusiveIndia,canoftenbetracedbacktopoorgovernance.Redtape,lackofaccountability,andcorruptionhasplaguedIndiasinceindependence.

Thegovernmenthaslaunchedalargenumberofinitiativesovertheyearsinordertoachievetheobjectiveofrapidgrowthcoupledwithpovertyalleviationandinclusiveness.Manyoftheseinitiativeshavefailedtoachievetheirgoalsbecauseofpoordesign,insufficientaccountability,andcorruptionatvariouslevels.Withouteffectiveimplementation,evensubstantialgovernmentexpenditureresultsinlimitedsuccess.

AsofOctober2010,outofthe559projectsundertakenbythegovernmentforinfrastructuredevelopment,14wereaheadofschedule,117wereonschedule,293aredelayedandforthebalance135projects,nodateshadbeenfixedforcommissioning.10

Realizingthataccountabilityandtransparencyarecriticalelementsofgoodgovernance,theRighttoInformationAct(RTI)wasenactedin2005.RTIempowerspeopletogetinformationfromthegovernmentandthusconstitutesabigsteptowardstransparencyandaccountability.However,theRTIitselfsuffersfrompoormonitoringofitsimplementation.ThegovernmentofficialsareoftenreluctanttoshareinformationwhilecommonpeoplehavealowlevelofawarenessregardingprovisionsoftheRTI.IthasbeenfoundthatthereisoftenunnecessarydelayintheexecutionofRTIapplicationsduetolackofmotivationonthepartofgovernmentofficials.Unsurprisingly,ithasbeenobservedthatinIndia,inordertofixtheprocesses,appropriatechangesfirstneedtobeeffectedatinstitutionallevelstofixtheinstitutionsthatdesigntheprocesses.11

Goodgovernancedependsonprocessesandincentivestonotonlydesigngoodpolicies,butmoreimportantly

oninstitutionstoimplementthesepoliciesefficientlyandwithefficientutilizationofresources.Transparencyandaccountabilityinthedeliveryofpublicservicescanbeimplementedthroughinvolvementoflocalself-governments,community,andcivilsocietygroups.

Althoughgovernanceislargelythemandateofademocraticallyelectedgovernment,privatesectorexpertisecanbeleveragedashasbeendoneinthecaseoftheUniqueIdentificationNumber(UID)project,whereinthecentralgovernmentisimplementingtheprojectundertheleadershipofNandanNilekani,whosecareerwaslargelyintheprivatesector.Utilizingtheknowledgeandexpertiseofprivatesectorleadersinothergovernancemechanisms,suchasthePlanningCommission,publicdistributionsystem,andruralemploymentcanhelpdeliverbettergovernanceatboth,thecentralandthestatelevels.Privatesectorcanplayabiggerroleinimplementingtheseinitiativesinthee-governancespace.Forinstance,Mindtree,aBangalore-basedITcompany,isworkingondevelopingandmaintainingapplicationsforrolloutoftheUIDprogram.

AnotherexampleofgoodgovernanceisprovidedbytheNorthAmericanElectricReliabilityCorporation(NERC),whichbeganasaprivate,voluntaryorganizationestablishedbythecompaniesthatsupplyelectricpowertotheelectricalgridoftheUnitedStatesandCanada.Inanefforttoguardagainstthecausesandeffectsofregionalblackoutsandothermajorservicedisruptionsthatareharmfultotheirbusiness,thesuppliersagreedonanenforceablesetofstandardsrelatedtotheiroperationswithNERChavingthelegalauthoritytoenforcecompliancewithNERCreliabilitystandards.

Effectivegovernancewillhelpingeneratingimprovedservicedeliverywithbetteroutreachtothepoor.Thiswillenhancethechancesofthepoormovingoutofpovertyandalsoreducediscriminationinaccesstobasicpublicservices,suchaseducationandhealthcareandtherebypromoteinclusivegrowth.

Governance

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“Corruption manifests itself in many forms. In some instances, funds meant for schemes for the welfare of the common man end up in the pocket of government officials. In some other instances, government discretion is used to favour a selected few. There are also cases where government contracts are wrongfully awarded to the wrong people. We cannot let such activities continue unchecked. I believe that there is no single big step which we can take to eradicate corruption. In fact, we will have to act simultaneously on many fronts. We will have to improve our justice delivery system.” —Dr.ManmohanSingh,onIndia’s65thIndependenceDay,15thAug2011


Bettereducationisoftenanimportantmeanstobetterjobs,increasedincome,andabetterqualityoflife.Toillustrate,JapaneseinvestmentsineducationaftertheSecondWorldWarhelpedittransformfromadefeatednationtoanindustrialnationthatcreatedinnovativeproducts,increasedemployment,andprovidedinclusivegrowthtoitscitizens.

Overthepastfewdecades,theglobaleconomyhasshiftedfrombeingmanufacturing-centrictoaknowledgedrivenone.Theservicessectorcontributionofworldproductionhasgrownfromaround52%in1970to68%in2005.12India’sincreasingintegrationwiththeglobaleconomyandthegrowthofsectorssuchasIT,BPO,andfinancialserviceshaveledtoanincreaseddemandforknowledgeworkers.AlthoughIndiacurrentlyhasaround480universitiesand22,000colleges13,inthenext10years,Indiawillneed700newuniversitiesand35,000newcolleges.ThepopulationofIndia,cuttingacrossregions,languages,andsocioeconomicstatus,hasbeguntoappreciatethevalueofeducationinaglobaleconomyanddemonstratedanincreasedwillingnesstopayforqualityeducation.AnecdotalevidencesaboundofdomestichelpersusingtheirearningstosendtheirchildrentoEnglishmediumschoolsinthehopeofabetterfuture.

“Indianeedstowidenitseducationbaseradically,”14saidProf.AmartyaSenafterreceivinganhonorarydegreeofDoctorofLiteraturefromtheNationalUniversityofEducationalPlanningandAdministrationatNewDelhiinJuly2011.

However,asmentionedbyProf.Sen,thereisalotthatremainstobedone.TheprimaryeducationsectorinIndiaismarkedbyvariations—theSeventhAllIndia

EducationSurveypublishedbytheNationalCouncilofEducationalResearchandTrainingin2006foundthatalthough80%ofchildreninthe5-14agerangewereenrolledintoschools,theratedroppedtolessthan50%forsecondaryschools.Nearly15%ofgovernmentschoolsaresingle-teacherschools.InsomestatessuchasBiharandRajasthan,girlswereonlyhalfaslikelytobeenrolledinsecondaryschoolsasboys.However,instatessuchasKeralaandTamilNadu,thesecondaryeducationenrolmentratesarepro-female.

ThegovernmenthaspassedtheRighttoEducationAct,whichmakeseducationafundamentalrightforallchildrenintheagegroupof6-14,butforthegoalof

Education

The government can provide the physical infrastructure in terms of classrooms, equipment, etc. (for example, existing infrastructure at the various industrial training institutes can be upgraded and used) and the private sector can create training material, train teachers, determine certification criteria, and recruit certified students.

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completeliteracytobeachieved,greaterinvestmentisneededinthephysicalandintellectualinfrastructure.Themiddaymealschemeenactedbymanystategovernments,withsupportfromvariousNGOsandtheprivatesectorcompanies,addressesafundamentalproblemthathasplaguedtheeducationsector—increasingstudentattendanceanddecreasingdropoutrates.However,otherproblemscontinuetopersist.Reportsofteacherabsenteeism,genderinequalityinenrolment,andinadequateinfrastructure,suchascrowdedclassroomsarenotuncommon.Forexample,theRighttoEducationActmandatesamaximumpupil-to-teacherratioof30:1,butaccordingtotheNationalUniversityofEducationPlanningandAdministration,over12%ofthenation’sschoolshadapupil-to-teacherratioof60ormorein2010.Correctingthisimbalancerequiresinvestinginteachertraininginstitutes,increasingthenumberoffull-timeteachersthroughbetterincentives,andintheinterimbridgingthegapthroughinnovativemodels,suchaspara-teachersorcontractteachersforshortdurations.

Indiacanleveragetheexperienceandsuccessthatothercountrieshavehadinaddressingsuchchallengesthroughinnovativesolutions.Toillustrate,TheGambiastartedaninitiativein2001tomakeschoolsmoregirlfriendly.Thisinitiativeincludedtheprovisionofgirl’stoiletsandwatersothatgirlscouldmanagetheirpersonalhygienebetter.Inaddition,thegovernmenthadsetuptheScholarshipFundTrustforGirlssothatallcostsrequiredforeducatingagirlchildaremet.Finally,inareaswheregirls’enrolmentwaslow,acampaignwasconductedtoeducatesociety,andaddressculturalfactorsthatresultingirlsbeingdeniededucation.Also,tofullyutilizeexistingclassroomcapacitywhilenewclassroomswerebeingbuilt,schoolsoperatedinshiftsonsixdaysoftheweek.15

MajorityofIndianprivateeducationrevenuesaccruefromformaleducationinstitutions.Theprivatesectorhasapresenceacrosstheformaleducationspectrumrangingfrompreschoolstohighereducationinstitutions.Whileprivateeducationisconsideredsuperiortopubliceducationintermsofitsquality,itisalsomoreexpensiveandlargelyrestrictedtourbanandsemi-urbanareasandispredominantlyinthekindergartenthrough12thstandard.16Atthetertiarylevel,ofthe~600universitiesinIndia,lessthanone-fifthareintheprivatesector.17However,itisestimatedthatover800newuniversitieswillbeaddedinIndiainthecomingdecade.18Theprivatesectorcanplayasignificantrolein

establishingnewuniversitiesgivenitsaccesstocapitalandphysicalinfrastructure,providedthattheregulatoryregimeforsettingupandoperatinguniversitiesisreformedtoenablefasterapprovalsandaccreditations.Infosys,forexample,hassetupafacilityinMysore,whichiscapableoftraining13,500employeesatatimeinaresidentialprogramwhichlastsaroundfourmonths.Asoneofitsco-foundersNandanNilekaninoted,itisprobably“theworld’slargestcorporateuniversity”.19ShivNadar,thechairmanofHCLTechnologiesLtd.,hassetupauniversity,whichaimstoprovidemultidisciplinaryandworldclasshighereducation.Itwillbeginoperationsthisyearandcanaccommodate4000studentsuponcompletionofthefirstphaseofcampusdevelopmentitself.IntheUnitedStates,whichhasanumberofthetopuniversitiesintheworld,everystatehasabodywhichisdesignedtopromotecollaborationbetweenhighereducationinstitutions.Someofthetopinstitutes,suchasHarvard,MIT,andStanfordareallprivateinstitutes.

Inadditiontoincreasedprivatesectorparticipationinformaleducation,thereexistssignificantpotentialatthetertiarylevelintheformofsettingupadditionalvocationaltrainingcoursesandinstitutes.Indiafacesashortageofskilledlabourinsunrisesectors,suchasretail,construction,andhospitality.Thegovernmentcanprovidethephysicalinfrastructureintermsofclassrooms,equipment,etc.(forexample,existinginfrastructureatthevariousindustrialtraininginstitutescanbeupgradedandused)andtheprivatesectorcancreatetrainingmaterial,trainteachers,determinecertificationcriteria,andrecruitcertifiedstudents.Suchanarrangementcanreduceindustrytrainingcostsandprovideindustrieswithalargerpoolofskilled,productive,andemployableresources.

Thailand,forexample,hasaDualVocationalTrainingprogrammodelledaftertheGermanmodelinwhichthestudentsworkastemporaryemployeesevenduringthecourseoftheprogramandarecompensatedfortheircontributionstowardsthecompany’stoplineandbottomline.Thisenablesstudentstogethands-on,relevantworkexperienceduringtheircourseasagainstinternshipsinwhichstudentsmaygetassignedtoirrelevantjobs.InThailand’sDVTprogram,companiesalsoofferpermanentemploymenttostudentsupongraduation.20

Thus,meetingthechallengesofuniversaleducationinpursuitofinclusivegrowthwillrequireaconcertedeffortfromboth,governmentandindustry.


EconomicgrowthandhigherincomeshaveledtoanacceleratingdemandforenergyandnaturalresourcesinIndiabutIndia’sgenerationcapacityandeffectiveutilizationiscurrentlyinadequate.

Theenergysectorsuffersduetoveryhighdistributionlossesandtheft.Lackofcompetitioninmanycriticalsegmentsoftheindustry,especiallydistribution,resultsininefficienciesastheexistingmonopoliesofstate-owneddistributioncontinuetounderperform.Thisresultsinunreliablepowersupply,whichhampersagricultureandindustryandalsopenalizeshouseholdswhilecausinglargewelfarelosses.Ruralelectrificationisanimportanttooltobringaboutinclusivegrowthbymakingelectricityavailabletofarmersandinruralareas.Electricitysupplyisthusoneofthecrucialinputsinthecontextofinclusion.

Reformssuchasstrengtheningofregulations,improvingdistribution,openingbulksupplytocompetition,andrevisionoftariffstomoreeconomiclevelsareessentialforrealizinginclusivegrowth.

Providingincentivestoprivatesectorcompaniestosetupnewplantsorfactoriesinbackwardregionscancatalysethedevelopmentthere.However,itisessential

forthegovernmenttoensurethattherightsofanytribalinhabitants,forestdwellers,andlocalsaresafeguardedwhentheseprojectsareimplemented.Thegovernmentcanincludeclausestoguaranteereservationofjobsforlocalsinthecontractthatitsignswiththeprivatecompanies.Itcanalsoincludeconditionsinthecontractforpromotionofancillaryanddownstreamindustries,whichwouldleadtofurthercreationofjobsanddevelopmentofpublicinfrastructureintheregiontherebypromotinginclusivegrowth.

ResourceendowmentsarenotaconstraintformostofthepoorIndianstatesastheyarerichlyendowedwithmineralandforestresources.ThestatesofMP,Bihar,andOrissahavesubstantialcoalandironoredeposits,whileRajasthanhassubstantialzinc,phosphorite,andcopperdeposits.IntheNorth-East,Assamhaspetroleumandnaturalgas.Jharkhandalonehas33%ofthecountry’smineralreserves.21Itmightseemparadoxicalthatahighlevelofmineralpresenceisoftencorrelatedwithweakereconomicperformance,lowergrowthrates,andinferiordevelopmentoutcomes.Thisresourcecursecanoftenbeseeninregionsthataredependentonresourcesextractedfromanarrowgeographicbaseandtheseregionsoftenperformpoorlyacrossarangeofdevelopmentindicators.

Energy and Resources

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LessonsfromsuccessfulminingregionsincountriessuchasAustraliaandNorwayhaveshownthatinordertoavoidthisresourcecurse,Indianeedstoimplementreforms,whichpursueabroad-basedgrowthstrategybackedbystronginstitutionswhilealsofocusingonsequencingofthereformsanddevelopments.22

Mininginisolationisunlikelytogeneratebroad-basedgrowthanddevelopment.Theminingsuccessstoriesareineconomieswheremineralextractionhasspurredorcomplementeddevelopmentinothersectorsoftheeconomy.Butthiscanonlyoccurifthereisaninvestmentfriendlyclimatethatpromoteslinkageswithupstreamordownstreamindustriesorcreatesinvestmentopportunitiesinothersectors.Theseinturnaidingeneratingjobsandfuellinggrowththatspreadthebenefitsofmining.

Stronginstitutionsareneededtopreventthecapturingofbenefitsbyaselectfewandpromoteinvestment.Institutionsarealsonecessarytoaddressthemanyandvariedenvironmentalandsocialcostsofmineralextractionthatcanimpedegrowth.

Also,thesequencingofthesereformsiscrucialassimilardevelopmentscanproducepositiveornegative

outcomesdependingonwhetherstronggoverninginstitutionsarepresent.Withinstitutionalstrengtheningandpropersequencing,thesereformsprovideanopportunityforincreasinginclusioninthelaggingstatesusingamineralintensivegrowthstrategy.

Finally,theprivatesectorcansignificantlycontributeininitiativesthataddresstheissuesofgreenandsustainableenergy.Forexample,theBerkeley-IndiaJointLeadershiponEnergyandtheEnvironmentisapartnershipbetweenthegovernment,privatesector,andeducationalinstitutionsofU.S.andIndiatoassistbothcountriesadoptpathwaysandapproachesforreducingtheemissionsofgreenhousegaseswhilepursuingsustainableeconomicdevelopment.NERC’spowersupplyintheU.S.andGE’sEcomaginationcampaignwhichpromisedtodoublethecompany’sinvestmentsincleanenergy23areadditionalexamplesofrolesthatcanbeplayedbytheprivatesector.SimilarinitiativesareneededtoharnessIndia’spotential,suchassolarpower,giventhegeographiclocationofthecountry.Awell-plannedenergydevelopmentandutilizationroadmapbackedbyeffectiveexecutionandprogrammanagementcanenableIndiatobridgetheenergygapandenableinclusivegrowthwithoutcompromisingontheenvironment.

Reforms such as strengthening of regulations, improving distribution, opening bulk supply to competition, and revision of tariffs to more economic levels are essential for realizing inclusive growth.


Undoubtedly,thetechnologyandtelecomsectorsinIndiahaveexperiencedtremendoussuccess.ThepastdecadehasseenanexplosioninthegrowthofcommunicationsconnectivityandthetechnologyindustryinIndia.AsofMarch2011,Indiahasatele-densityof70%(urbantele-densityexceeds150%,whereasruraltele-densityis~33%)24andtheITindustrycontributesto~6%oftheGDP.TheoutsourcingindustryisexpectedtogrowtoUSD225billionoverthenextdecade.25Withover25lakhpeopleemployeddirectlyandindirectlybytheITindustry,itisoneofthelargestjobcreatorsintheIndianeconomy.Alargeuntappeddomesticmarket,acriticalmassoftechnology-savvyprofessionals,andarobustecosystemwithproveninnovationstailoredfortheIndianmarketarealluniqueassetsthatcanbeleveragedtodriveinclusivegrowthinthecountry.

Thereareover800millionwirelesssubscribersinIndiatoday26andthecountryhasoneofthelowesttariffsintheworld.Ruralcommunitiescannowaccessup-to-dateinformationataffordablepricesfacilitatedthroughinitiativessuchasITC’sE-Choupal.E-Choupalimprovestheearningcapabilityofandminimizesriskforsmallfarmersbyprovidingthemwithrelevantandtimelyinformationrelatedtoweather,cropprices,bestpractices,etc.,throughamobilephone.Similarmodelscanhelpworkersinotherindustriesthatdominatetheruraleconomy,suchasfisheries,handicrafts,andtextiles.

TheubiquitousmobilephonecanalsoserveasanInternetaccessdeviceandbeusedtodeliverotherbasicservices,suchaslandadministrationrecords,mobilecouponsforaccessingpublicdistributionsystems,etc.Suchinitiativeswouldhelpsocialbenefitsreachtheintendedbeneficiariesandreducesystemiccorruption.Further,amobilephonecanalsoprovideaccesstoinformationandexpertiseandminimizetheimpactofgeographicaldistanceorlocation.Forexample,theSouthAfricanDokozasystemusescost-effectiveSMSforinformationmanagement,transactionalexchange,andpersonalcommunicationforuseinrollingouttreatmentsrelatedtoAIDSandtuberculosisacrossthewholecountry.27Thus,themobileecosystemcanbeusedtoimprovequalityoflifebyhelpingimproveservicessuchasprimaryhealthcare.

Withtherolloutof3Gandthedecliningpricesofhandsetswithincreasingfeatures,everlargernumberof

peoplewillhavetheabilitytoaccessandconsumericherinformation.Capabilitiesof3Gsuchasonlinevideostreaming,videocalling,andfasterdownloadscanbeutilizedtoprovidevalue-addedservicessuchasremoteeducation.

Inanefforttoprovidetelecomservicesataffordableprices,multiplemeasures,suchasMobileNumberPortability,bringingmorenumberofmobileoperatorstoinfusecompetitiveness,settingupofTelecomCentresofExcellenceandtheCoordinationCentreinPPPmodelshavebeentakenoverthelastfewyears.TofurthergiveimpetustothetelecominfrastructureinIndia,thePPPinitiativesneedtojointlyaddresscapabilitybuildingforcreatingmarket-readytalentpool,continuoustechnologyadaptationtomeetIndia-specificeconomicandsocialdevelopmentneeds,fasterdeploymentofservices,andeffectivelybridgingtherural-urbandigitaldivide.

Onthetechnologyfront,theIndiantechnologysectorhasprovidedjobs,increasedincomes,andimprovedthelivelihoodsforthousandsofpeople.Althoughthecountrywasinitiallyattractiveduetoitslow-cost,high-qualitytalent,thiscostarbitragehassincebeendiminishingduetowagepressuresandthesectorwitnessinghighemployeeturnover.TheIndiantechnologysectorisnowincreasinglycompetingwithotheroutsourcing/offshoringdestinationcountriessuchasVietnamandPhilippines,especiallyinrelativelylow-skillservices,suchasvoice-basedcallcentresanddataentryoperations.28Someofthelostadvantagescanberegainedbyleveraginghigh-speedwirelessInternetaccessibilitytosetupruralorsemi-urbanBPOs.Inadditiontoloweringcosts,providingjobs,andincreasingincomesinthetier2and3cities,suchamovewillalsohelpstemthemigrationfromruralareastourbanIndia,whichiscausingsignificantpressureonurbaninfrastructureandlivingstandards.29Further,thesettingupofindustriesintier2and3citiescoupledwithincreaseddisposableincomeofthelocalpopulationwillhavecascadingeffectsandhelpthesettingupandgrowthofsecondaryservices,suchasfoodcateringandlanguagetutorialsinthosecities.

Hence,providingeverycitizenwithaccesstoinformationandharnessingtechnologytoinnovativelydeliverserviceswithintheIndiancontextwillbethekeytodrivinginclusivegrowthinanincreasinglydigitalworld.

Telecom and Technology

16

Investmentininfrastructuredrivesthegrowthofacountry’seconomy.In1980,IndiahadagreaterinvestmentandinfrastructurebasethanChina,buttoday,Chinaisaheadinphysicalinfrastructureavailability,quality,andquantity.30India’spopulation,availabilityofnaturalresources,andlowcostbasemakeitattractiveasamanufacturingdestinationandthemanufacturingsectorcansubsequentlydrivegrowthinjobsandincomes.However,formanufacturingtobecompetitiveandsustainablerequiresanefficientsupplychainandphysicalinfrastructureforprocurementofrawmaterials,storageofwork-in-processandfinishedgoods,andspeedytransportationtocustomersbasedondemand.AspointedoutbythePlanningCommission—“Goodqualityinfrastructureisthemostcriticalphysicalrequirementforattainingfastergrowthinacompetitiveworldandalsoforensuringinvestmentinbackwardregions.”31

ThePrimeMinisterofIndia,Dr.ManmohanSinghhassaidthatIndianeedstoinvestoverUSD1trillionininfrastructureby2017ifthecountryistoachieve10%annualgrowthrates.32TheEleventhFiveYearPlanenvisagesimproving~26,000kilometresofarterialroutes,thedevelopmentofthegoldenquadrilateral,theNorth-South-East-Westcorridor,twodedicatedfreightcorridors,andtheupgradationandexpansionofover70airports.

However,fundingnewinfrastructureprojectswilladdressonlyapartoftheissue.Inordertopromoteinclusivegrowth,systemicreformsareneededtofixtheinstitutionsandtheprocessesusedtocreateinfrastructure.Currently,thelandacquisitionprocessforpublicprojectsisbureaucraticanddoesnotadequatelyaddresstherehabilitationandcompensationmechanismsforthedispossessedtherebyleadingtoill-willandpublicprotests.Equitablepoliciesthatallow

fortimelyacquisitioncoupledwiththeabilitytoresolveissuesamicablyandwithindefinedtimelinesareneeded.

Thekeycomponentstophysicalinfrastructurearetransportationconnectivityandwarehousingstorage.2%ofIndia’sroads(theNationalHighways)carryover40%oftheroadtransport.ThepoorconditionofIndia’sroadsreducestheaveragespeedoftrucksto40kmphascomparedto80kmphindevelopedeconomies.Therailwayroutenetworkexpansionhasbeenslowatanannualgrowthrateof0.3%andmanywagonsemployobsoletetechnologyandhavenotbeenupgradedindecades.Internationalairportsindevelopedcountrieshandle~75take-offsandlandingsperhour,whereastheMumbaiinternationalairportcanhandle~35take-offsandlandingsperhour.33Over90%ofthewarehousingcapacityisintheunorganizedsector.Mostwarehousesaremerelycoveredstoragespaceswithlowcapacities,outdatedtechnologies,andlackfacilities,suchascoldstorage,verticalspaceutilization,andadvancedwarehousemanagementsystems.34

Improvingtransportationconnectivityrequiresinvestmentsinboth,urbanaswellasruralinfrastructure.WhileportsandairportsconnectIndiatotherestoftheworld,theroadsandrailwaysarethebackboneforconnectingvariouspartsofIndia,specificallyruralIndiatourbanIndia.Fundingcanbeobtainedthroughanumberofmeans—governmentinvestment,public-privatepartnerships,andprivateinvestments.Indiahasstillnotfullyexploitedthepotentialofinsuranceandpensionfundsintheinfrastructuresector.35Inadditiontofunding,apropermonitoringmechanismisneededtomonitorprojectssothattheydonotoverrunbudgetsandschedules,leakagesareminimized,andthattheassetscreatedareofinternationalstandards.InnovativemodelssuchastheuseoftheNationalRuralEmploymentGuaranteeAct(NREGA)tocreate

Infrastructure

Funding new infrastructure projects will address only a part of the issue. In order to promote inclusive growth, systemic reforms are needed to fix the institutions and the processes used to create infrastructure.


roadnetworksandexpandrailwaynetworkswhilesimultaneouslycreatingjobscanbeusedtospeedupthepaceofinfrastructureassetcreation.

Globally,countriessuchasMalaysiahaveformulatedpoliciesthatencourageprivatesectorinvestmentininfrastructureandinrecentyears,theprivatesectorinvestmentininfrastructurehasexceededthatofthepublicsector.Manyofthehighways,expressways,andurbanroadshavebeenbuiltbytheprivatesectorastollroads.

ThesuccessfulcompletionoftheDelhiMetroonbudgetandalmostthreeyearsaheadofscheduleisproofthatifinstitutionaldelaysareminimizedandpowerisdevolvedappropriately,Indiahasthecapabilitytoexecutelargeinfrastructureprojectsefficiently.36

Investinginwarehousingfacilitieswillbenefitnotonlymanufacturingindustriesbutwillalsoserveinfurtheringsocialwelfaregoals.In2010,thegovernmentofIndiaestimatedthatoverRs.50,000croreworthoffooditemsiswastedeveryyearduetotheunavailabilityorinadequacyofstoragefacilities.37Creatingcoldstoragecapacityforperishablesbyleveragingtechnologycanhelpreducewastageandtherebydecreasefoodprices

whileincreasingthenation’sfoodsecurity.Theprivatesector’saccesstocapital,technology,andprocessexpertisecanbeharnessedusingthePPPmodelinbuildingandoperatingofwarehouses.

Likeinmanyothercountries,urbanization—themovementofpeoplefromruralareastosemi-urbanandfromsemi-urbantourbaninsearchofjobsandabetterqualityoflife—isagrowingphenomenoninIndia.By2030,Indiaisexpectedtohave41%ofitspopulationlivingincitiesandtowns.38Therefore,underinvestmentininfrastructurecreation,costoverrunsofprojects,andpoorqualityofphysicalinfrastructureareriskstotheIndianeconomicgrowthstoryandtoensuringinclusivegrowth.WhileboththepublicandtheprivatesectorsareawareofthekeyshortcomingspresentinIndia’sinfrastructure,theapproachtowardsaddressingtheseshortcomingsneedtobemoreformalized.Articulatingsystematizedreformsacrosstheinfrastructuredevelopmentlifecycle—fromconceptualizingtoplanningstagetocreatingprocessesforinfrastructuredevelopmentandfinalexecution,canhelpachievethemuchanticipatedresultsinIndia’sinfrastructuredevelopmentstory.

18

ThehealthcareindustryinIndiapromisestobeoneofthefastgrowingonesandisexpectedtobeaUSD280billionindustryby2020.39Thecountryhasworld-classhospitals,highlyqualifiedmedicalpersonnel,andisgraduallyemergingasapreferreddestinationformedicaltourismforcitizensofthedevelopedworld.However,theactualdeliveryofhealthcareservicesisinadequateforalargesectionofthelocalpopulation.Indiacomparespoorlytootherdevelopingcountriesonparameters,suchashospitalbeddensity,physiciandensity,numberofdoctorsgraduatingeveryyearfromIndianuniversities,andpublicexpenditureonhealthcare.40Also,thelowpenetrationofhealthinsurance(only~15%ofthepopulationhasanyformofhealthinsurance41)impliesthataseriousillnessorhospitalizationcausessignificanteconomichardshiptomanysectionsofsociety,especiallytheurbanpoorandtheruralpopulation.Inthecontextofhealthcare,inclusivegrowthimpliesthathealthcareresourcesareallocatedequitablysuchthatthebenefitsaresharedbyallsegmentsofthesociety.

Today,healthcareisnoteasilyavailabletoallsectionsoftheIndiansociety.Aruralpersonseekinghealthcarehastotravel~10kmswhichtakesanentireday(andconsequentlyaday’searnings)duetopoorphysicalconnectivity.Suchsituationscanhavedireconsequencesduringmedicalemergencies.Thelackofinfrastructure,poormonetarycompensation,andsocialprejudicesresultindoctorsbeingreluctanttopracticeinruralareasandtherebyfurtherreducinghealthcareavailability.Whileitismandatedforallmedicalstudentstospendoneyearinruralareasaspartoftheirinternship,makinghealthcareuniversallyavailablerequiresmoreefforts.Someprivatehospitalshavebegunbysettinguphealthcarefacilitiesintier2and3citiesusingbusinessmodelswhichlowercostandconsequently,allowthemtooperateatlowerpricepointsthanthoseinmetros.Privateplayersareexperimentinginstrikingabalancebetweenprojectassets,location,investmentamount,andpricingtodeliverqualityhealthcareinnonurbanareas.

Intheabsenceofinsurance,almostthree-fourthsofallhealthcareexpenditureisbornebytheconsumer.Healthcarecostsarerisinggiventhedemand-supplymismatchinavailabilityofservices.Tomakehealthcaremoreaffordable,allstakeholdersarerequiredtocollectivelyworktowardsreducingthecostsofhealthcareandensuringthatindividualshavethe

purchasingabilitythroughincreasedhealthinsurancecoverage.CertaingovernmenthealthinsuranceschemessuchastheYeshaswinischeme(Karnataka)haveseensuccessinincreasingcoverageandprovidingaffordablehealthcaretononurbanpopulations.42However,thereremainssignificantuntappedpotentialinaspects,suchasthesettingupofno-frillshospitals,frugalinnovationinmedicaltechnologies,drugdevelopment,andleveragingeconomiesofscaletoreducecosts.

Thedisparityinqualityofhealthcareservicesprovidedatprivatehospitalsvis-à-visgovernmenthospitalsislarge.Theunderlyingfactorsforsuchdisparityarethelackofcompetition,poorinfrastructure,andlackofaccountabilityandmonitoringmechanisms.Inanefforttoaddressthiseffectively,theprivateandpublicsectorneedtopartnerininitiativestowardspromoting

Healthcare

Private players are experimenting in striking a balance between project assets, location, investment amount, and pricing to deliver quality healthcare in nonurban areas. Figure 3: Number of hospital beds (per 1000 population)

9.7

4.1

2.4

0.9

Russia China Brazil India

Source:WHOHealthStatistics2011,DeloitteAnalysis


“A multi-pronged strategy involving various stakeholders is necessary. Both public and private sectors need to work in tandem to make healthcare available, accessible, and affordable to all.” —SheilaDikshit,ChiefMinisterofDelhi

20

awarenessanduseofhealthcarefacilities,upgradingskillsforhealthcaredeliveryprofessionals,andincreasingtheuseoftechnology(suchastelemedicine)indeliveringhealthcareservices.SomestatessuchasGujaratandTamilNaduhavestartedaccreditingtheirpublichealthcarefacilities,suchashospitals,labs,andbloodbanks.Thismodelshouldbeimplementednation-wideandthegovernment,inassociationwithreputedmedicalresearchinstitutionsshoulddevelopconsistent,reliable,andeasilyunderstoodaccreditationnorms.

TheprivatesectorcanalsoplayalargerroleinenablingtheweakersectionstoaffordandaccesshealthcarebydevelopingmicrohealthinsuranceproductsandrollingoutcashlessadmissiontohospitalsinruralIndia.AsimilarinitiativealreadyexistsinKenyathroughtheCooperativeInsuranceCompanyofKenya,whichmarketsitsinsuranceproductsthroughmicrofinanceinstitutions.Theseinstitutions,inturn,enablethelow-incomecitizenstomakeannualpremiumpaymentsthroughloanswhicharetoberepaidmonthly.

GivenIndia’spopulationandregionalvariations,isolatedorsporadicinnovationswillnotensureinclusivehealthcare.Fordrivingsustainablehealthcaredevelopment,itisimportanttoeffectivelyusetechnologyacrossallareasofthehealthcarevaluechainfrominformationcapturetodiagnosistorecoverymonitoring.Itisalsonecessarytocomplementtechnologyinnovationswithinvestmentsinthemedicalacademicinfrastructureintermsofquantityandqualityofmedicaleducationavailable.Moreover,theneedforthepublicandprivatesectortoworktogethercannotbeundermined.Whilethegovernmentbringsintherightlevelofplanningandinvestmentsrequiredforbroad-basedaccesstohealthcare,theprivatesectorparticipationincomplementingeffortstowardssettingupofthephysicalinfrastructure,creatingawareness,andensuringaccesstoqualityhealthcarefacilitiesisequallyimportant.

The private sector can also play a larger role in enabling the weaker sections to afford and access healthcare by developing micro health insurance products and rolling out cashless admission to hospitals in rural India.


Financial inclusion

Asocietycanbeconsideredfinanciallyinclusivewhenallsegmentsandstrataofsocietyhaveaccesstofinancialservicesandtimelyandadequatesourcesofformalcredit.Similartoaccesstoeducationandhealthcare,theaccesstofinanceisanimportantoneforallsegmentsofsociety,andespeciallytothepoorandmarginalizedsections,asitcanfacilitatethemtoekeoutasustainablelivingandalleviatethemfrompoverty.Forexample,thelawonexclusion(1998)inFranceunderscorestheindividual’srighttoabankaccount.Similarly,theCommunityReinvestmentActof1997intheUSAmandatesbankstooffercredittoallpopulationsegmentswithinitsareaofoperationandpreventsspecifictargetingoftherich.

Today,thebulkofIndia’spopulationlacksaccesstofinancialproductsandservices,suchassavingsaccounts,loans,insurance,pensionschemes,payments,etc.Bankingpenetrationisestimatedtobeonlyabout5%amongthelowerincomeclasses,andevenamongthemiddle-andhigh-incomeclassesthepenetrationisabout45%.43Mostofthepopulationbelongingtothelowerincomegroupsdoesnothaveaccesstoformalbankingandcredit.Thisleadstoaviciouscycleinwhichthevulnerableareforcedtoresorttoborrowingfrominformalsources(suchasmoneylenders)atusuriousratesofinterest.Thisnotonlyhamperstheirabilitytopaybackandgetdrawnintofurtherdebt,butalsotakesawayasubstantialportionoftheiralreadymeagreearnings.Thisdebttrapworsenspovertylevelsandcaseswherethedebtorhascommittedsuicidefearinganinabilitytopaydebtsarenotunheardof.

Realizingtheimportanceoffinancialinclusion,theReserveBankofIndiahaspushedforthesamethroughpolicymeasures.Recognizingthatprivatebankscanhaveanimportantroletoplayinincreasingbanking

penetration,inearlyJuly2011,theRBIissuedacircularmandatingallscheduledbankstoopenatleast25%oftheirnewbranchesinruralareas.Further,theRBIhasidentifiedover70,000villageswithpopulationsgreaterthan2,000thatarecurrentlyunservedbybanks.However,inadditiontoopeningnewbranchesincurrentlyunderservedareas,itisalsoimperativetoaddressotherfactorsthatimpairaccesstofinancialservices.

Theabilitytoaccesssmallamountsofcapitalthroughformalmicrofinanceloanshasenabledmanypeoplebelowthepovertylinetostartsuccessfulsmallenterprisesandworktheirwayoutofpoverty.GrameenBankinBangladeshpioneerednotonlymicrofinanceloansbutalsoplayedapartininclusivegrowththroughinitiatives,suchasfinancialliteracysessions,women’sempowermentthroughgrouploans,andbysettinggoalstoeliminatepovertyinareasofbranchoperation(measuredbybenchmarksrelatingtoaccesstofood,water,andsanitaryfacilities).ThemicrofinanceindustryhasprivatesectorparticipationinIndiabuthashadcontroversiesrecentlyrelatingtoconsumerprotectionandcorporategovernanceissues.TheMicrofinanceBillwhichisexpectedtobeintroducedinParliamentshortlyaimstobealegislationthataddressesthechallengesofthemicrofinanceindustryintermsofaregulatoryauthority,clientprotectionmeasures,andensuringthatmicrofinanceinvestorsdonotmakeexcessiveprofitsattheexpenseoftheborrowers.

Likeinmanyothersectors,technologycanbealeveller.Forexample,themobilephonecanactasasmartwalletaswellasatransactionalmedium.Thiscanbeusefulinremoteareaswheresettingupphysicalbankinginfrastructurewouldnotbefeasible.Similarly,paymentsfromsocialwelfareschemessuchasNREGAcanbe

The mobile phone can act as a smart wallet as well as a transactional medium. This can be useful in remote areas where setting up physical banking infrastructure would not be feasible.

22

madedirectlytosmartcardswithbiometricinformationsoastofacilitatemorepeopletohaveaccesstoandusebankingfacilities.

Theprivatesectorcanplayitspartinreducingthebarrierstoadoptionandaddressingsomeofinteractingfactorsthataffectfinancialinclusion.Mostimportantly,productsandservicesneedtobetailoredconsideringthesocioeconomicfabricofnonurbanIndia.Thiswouldimplydesigningnewproductsandservices.Giventhelackofasocialsecuritynet,innovationssuchasmicroinsuranceandmicrosystematicinvestmentplansforretirementcanbesuccessfulifdesignedandmarketedproperly.Othermonetaryaspectssuchasminimumbalanceandservicechargesonsavingsaccountswillneedtobetweakedappropriatelysothatservicesareaffordabletothetargetcustomersegmentandyetallowthefinancialintermediarytobeprofitable.

Removingotherbarrierstoadoptionwillalsoposeachallengethatneedstobeaddressedjointlybytheprivateandpublicsectorbanks.Giventheirlackoffamiliaritywithbanksandfinancialintermediaries,alargemajorityofthecurrentlyunbankedpopulationmightbehesitanttousesuchservices.Campaignstoeducatethepopulationaboutthebenefitsoffinancialinclusioncanhelpbringtheunbankedintotheformalbankingsystem.Tobeeffective,theprivatesectorcanpoolresourcesandconductcampaignsjointlysothatlargerareascanbecoveredtherebydrivinggreater

penetration.Equallyimportantwillbetodesignsimpleproceduresthatreducetransactionalcostsforthecustomer—noteverybodyinruralareaswillhavethedocumentation(suchasidentityprooforaddressproof)requiredtoopenanaccount.Otherbehaviouralfactorssuchasthelackofliteracyorcomfortwithonlyasingleregionallanguagemustbefactoredinwhiledevelopingmethodsthatmakeiteasyforsuchpeopletoaccesstheiraccountsorformalbankingchannels.

Recognizingtheimportanceofafinanciallyinclusivesociety,theRBIhasformulatedpoliciessuchasthemandateforbankstoofferno-frillsaccount,simplerKnowYourCustomernorms,andeasiercreditfacilities(suchastheGeneralCreditCardsscheme)whicharetailoredtowardsservingtheunbankedpopulationandincreasingbankingpenetration.Both,publicandprivatesectorfinancialinstitutionsneedtogiveafurtherimpetustodrivefinancialinclusionoverthecomingyears.


Business model innovation

In2010,lessthanone-fifthoftheIndianpopulationhadanaveragedailypercapitaincomegreaterthanUSD4.However,by2030,itisestimatedthatoverhalfoftheIndianpopulationwillhaveanaveragedailypercapitaincomegreaterthanUSD4.44Growthindisposableincomecoupledwithtechnologyinnovationsthatmakeiteasierforcompaniestoreachconsumersimpliesalargeandpotentiallyprofitablemarket.However,simplytransplantingproducts,services,orstrategiesfromthedevelopedworldorevenfromurbanIndiamaynotalwaysworkinalarge,developing,anddiversemarketsuchasIndia.Inclusivegrowthrequirescompaniestoinnovatetheirbusinessmodeltoprofitablyservethe“bottomofthepyramid”.Thisentailsunderstandingthespecificneedsofthevarioustargetcustomersegments,theirpreferences,purchasingpower,anddesigningsuitablecustomervaluepropositions.

SeveralexamplesofinnovationcanalreadybefoundintheIndiancontext.In2008,GodrejlaunchedtheChotuKool—asmaller,cheaper,portablerefrigeratorthatusedsignificantlyfewerpartsthanaregularrefrigerator.Insteadofusingtheconventionalcoolingtubesandrefrigerant,theChotuKoolwasdesignedtouseafanthatranefficientlyonevenerraticpowersupply,andwastargetedatthelowerincomeclasseswhotypicallyhavelessfoodforstoragethandothemiddleandupperclasses.Similarly,theadventofdual-SIMmobilephoneswasbasedonunderstandingthatmanymobilephonesubscribershavetwophones—oneforincomingcalls,andanotheronetomakeoutgoingcallsandtherebytakeadvantageofthecostdifferentialinprepaidplansofferedbydifferentmobileoperators.TheNano,acardesignedtobesoldatthepricepointofUSD2,500wastheresultofRatanTata’sinsightintothecustomerpsycheandneeds.Seeingafamilyoffourtravellingonascooter,hebelievedthatacarthatofferedbettersafety,comfort,andwasaffordablewouldbeacompellingvalueproposition.45DuringhisvisittoIndiain2010,theUSPresident,Mr.BarackObamaappreciatedtheKisaanSancharService(roughlytranslatedas“Farmers’NewsService”)providedthroughajointventurebetweenBhartiAirtel,IFFCO,andStarGlobal.TheKisaanSancharServiceleveragestechnologytoempowerfarmerswithrelevantandtimelyinformationtomakebetterdecisions.46

However,thereissufficientscopeforadditionalinnovativebusinessmodelsineverysector.Forexample,vaccinesandsurgeriesthatarelowcostwhilecomplyingwithinternationalqualityrequirementsareneededinthehealthcaresector.Theconvergenceoftelecommunications,media,andtechnologypresentsanumberofopportunitiestodriveinclusivegrowththroughnewproductsandservicessuchasremoteeducationandmobilebanking.

Akeytakeawayfromalltheaboveexamplesisthatboththepublicandtheprivateenterprisesneedarefreshedapproachtowardscreatingagenuineandinclusivevalueproposition—onethatfocuseson“getting-the-job-done”asagainstsimplyintroducingascaleddownorcheaperversionofanexistingproductorservice.Acookie-cutter“onesizefitsall”approachisunlikelytobesuccessfulincreatinginclusivegrowth.Tosucceed,companiesneedtodevelopacompellingcustomervalueproposition—provideaclearsolutiontoacustomerneed—whilecreatingvalueforthecustomerandthecompany.Leveragingexistingresources(technologyandpersonnel)andprocessescanhelpdesignnewproductsandservicesataffordablepricepoints.

Further,publicprivatepartnershipscantaketheformwhereinprivatesectorbringsaccesstoproducts,services,andcapitalandthepublicsector,givenitsbetterreachinthehinterlands,providessalesanddistributionsupport,withthejointobjectiveofeffectivelyservingabroadercustomerbasewithinnovativeproductsthathelpmeetcustomers’specificneeds.

Innovation,bydefinition,isrisky.Therehavebeenandwillcontinuetobeinnovationsthatwillnotsucceedasenvisaged.However,theprobabilityofsuccesscanbeincreasedifcompaniesreinventtheirbusinessmodelstoconsiderinclusivityasakeyfactoratthedesignstageitself.Innovativebusinessmodelsthatareinclusiveinnaturenotonlybenefitsocietyasawhole,butalsoserveasanewandprofitablerevenuestreamforenterprises.

24

Conclusion

Inordertoachieveinclusivegrowth,holisticandintegratedsolutionsareneededtofacilitaterapidandsustainablegrowth.ThetaskofbuildinganInclusiveIndiaforits1.2billionpeopleissolargeandcomplexthatitcannotbeaccomplishedbyeitherthegovernmentorbytheprivatesectorworkinginisolation.AchievinginclusivegrowthisnotonlytobeseenasapriorityinthePlanningCommission’sFiveYearPlans,butalsoasanequallysignificantopportunityforeveryenterpriseinthepublicandtheprivatesector.Today,‘Inclusion’forIndiaisn’tamerebuzzwordthatindividualsandenterprisestalkabout,butanimperativethatcallsforconcertedactiontowardsbringinginclusionineveryaspectofhowindividuals,publicandprivateenterprisesaswellasthegovernmentoperateandenvisagetogrow.

Focusofthegovernmentonbetterandmoreefficientdeliverymechanismstoimproveaccesstocurrentlybackwardregionsiscrucial.Ithasalreadybeenobservedthatmajorityofthelow-incomestateshaverichgeographicresources.However,duetopoorinfrastructure,theseregionsareoftencaughtinaviciouspovertycirclefromwhichtheyfinddifficulttobreakout.However,iftheseregionscantakealeafoutofexperiencesincountriessuchasAustraliaandtailoritforlocalneeds,theypresentagreateropportunityforitspeople.

IthasbeenarguedthatthedemographicdividendplayedaroleintheeconomicmiraclesofthefourEastAsianTigers—HongKong,Singapore,Korea,andTaiwan.47Indiahasastrategicopportunityasaresultofitsdemographicsdividend,itsentrepreneurs,itstechnologyprowess,itsdemocracy,andthelargeEnglish-speakingpopulation.However,thiswindowof

opportunitycouldbeshortandhenceitisimperativeforthegovernmenttotryandachieverapid,sustainable,andinclusivegrowth.

Privatesectorparticipationcanbringaccesstotalent,capital,processes,andtechnologyinnovationneededtodriveinclusivegrowth.Thechallengefortheprivatesectoristoincorporateinclusivenessinitscorporatephilosophyandtofacilitateitsleadersandbusinessmanagerstoactivelyparticipateandplaytheirroleinfosteringnewproducts,services,andbusinessmodelsthatenableamorewidespreadandequitablegrowthintheyearstocome.Additionally,theprivatesectormusttakeonalargerrolebyconsistentlyprovidingitsskills,suchasstructuredandgoal-orientedprocesses,effectiveprogrammanagement,efficientexecutionandmonitoringmechanisms,tothegovernmentandthepublicsectortowardstheunifiedgoalofachievingthemuchdesiredinclusioninIndia.

AsNandanNilekaninotesinhisbookImaginingIndia(2008):“Indianowstandsevenlybalanced,betweenourreluctancetochangeinthefaceofimmensechallengesandthepossibilitieswedohaveifwedotackletheseissueshead-on.Theconsequencesofthesetwochoicesareinextremes—inthelongtermwewilleitherbecomeacountrythatgreatlydisappointswhencomparedtoourpotentialoronethatbeatsallexpectations.”

Indiahasahugepotentialtobearolemodelforthiscenturyiftheeffortsattheinclusivegrowthbythegovernmentandprivatesectorsucceed.Theopportunitytoactisnow.


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26

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Joydeep Datta GuptaChiefOperatingOfficerDeloitteandToucheConsultingIndiaPvt.LtdE-mail:[email protected]

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Vikram LatawaSeniorManagerStrategyandOperationsConsultingE-mail:[email protected]

Pradyot AnandManagerStrategyandOperationsConsultingE-mail:[email protected]

Suman DubeyManagerStrategyandOperationsConsultingE-mail:[email protected]

Abhishek SinghSeniorConsultantStrategyandOperationsConsultingE-mail:[email protected]

Anupriya NayyarSeniorConsultantStrategyandOperationsConsultingE-mail:[email protected]

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